Betting On The Private Sector?

There’s nothing like a little shareholder revolt to raise the cost of your company’s shares. At least that’s what Bob Johnson, chairman and CEO of BET Holdings Inc., learned when he announced plans to take his Washington, D.C.-based media company private.

In early September Johnson and Liberty Media Corp., a subsidiary of TeleCommunications Inc. (TCI), offered to buy 6 million shares of BET owned by shareholders, who currently control about 36% of the voting stock. The $48-per-share offer was a 17% premium over the previous day’s closing price. The following week, the stock climbed to $53.

Within a week of the offer, however, the minority shareholders filed a class action lawsuit against Johnson; John Malone, who heads TCI; and board of directors members Denzel Washington and National Public Radio President Delano Lewis, among others.

The suit aims to “void and enjoin defendants'” efforts to deprive the company’s minority shareholders of their equity interest in BET as a grossly unfair and inadequate price and to usurp the benefits of the company’s growth and future prospects for the defendants’ own benefit.” In other words, they felt Johnson was low-balling them just as they believe BET is enjoying “newfound financial success.” Mario Gabelli, BET’s largest individual investor, who owns 12% of the company, refused to comment.

Indeed, BET has come a long way since Johnson started the concern 18 years ago with a $15,000 loan and two hours of programming each day. Since then, BET Holdings has grown to include three additional cable channels, the BET Soundstage restaurant; BET Weekend, Emerge magazine and other entities. Future plans include a line of sports apparel, a nightclub at Disney’s Pleasure Island resort in Florida and a hotel/casino in Las Vegas targeting African Americans. Regardless of who prevails in court, analysts believe these projects are not in jeopardy.

So why go private? “Here is a guy furiously extending the BET brand, and he has to explain his motives and ambitions every step of the way to stockholders,” says Spencer Grimes, an analyst at Smith Barney. “And you know what? That gets tiring.” According to Nate Chapman, president of the Baltimore-based Chapman Co., the problem with being a public company is that it must consistently meet quarterly earnings expectations so the stock will continue to appreciate. “But sometimes if you’re looking to grow a company, often it takes a few quarters for initiatives to work out. In a private company situation, you don’t have to worry and can take a longer view than what’s going to affect you immediately.”

What Johnson does next is anyone’s guess. The CEO declined repeated requests to be interviewed for this story. Yet, Chapman says the possibility looms that different parties, such as other media or cable companies, could make competing bids. Or Johnson, unwilling to pay as much as the stock is currently trading for, may decide to withdraw his offer. “The investment community in general has a lot of confidence in Johnson’s leadership,” says Chapman. “So going back to business as usual would not be